How a prestigious Wall Street law firm got caught up in FTX’s chaos

Johnnie Pratt

Given that Algernon Sydney Sullivan and William Nelson Cromwell opened their eponymous law agency in 1879, Sullivan & Cromwell has turn into a go-to exercise for the most critical corporations in the entire world, from General Electric powered to Goldman Sachs.

In 2021, the white-shoe business commenced operating with an upstart entrepreneur who was both of those figuratively and virtually significantly from its Wall Road base, but a person who some thought could be the following world-wide economical titan. FTX, headquartered in the Bahamas, was continue to a very younger firm, but its founder, Sam Bankman-Fried, was rising as the respectable if eccentric experience of the rising cryptocurrency business.

More than the upcoming 16 months, Sullivan would get paid $8.6mn of service fees executing many assignments for FTX. Now the legislation business may be in line for a windfall of tens of thousands and thousands of bucks paid by the individual bankruptcy estate for encouraging steer the stricken crypto empire, now with no its founder, by way of individual bankruptcy.

The amount of money that Sullivan built from the increase of FTX, and stands to make from its fall, are modest in the context of all round revenues, which have been $1.7bn in 2021, in accordance to American Lawyer. But its starring purpose in the salvage operation, coming so soon following it allowed some of its status to rub off on FTX, has drawn scrutiny of its dealings with the now-cratered fintech.

On Friday, a federal personal bankruptcy decide permitted new FTX administration to seek the services of Sullivan as direct personal bankruptcy counsel, quickly about-ruling objections that the organization was as well tainted by its current romantic relationship with the crypto corporation to pretty investigate the alleged wrongdoing. The new FTX chief, John Ray III, has reported he is keen to go on to the job of returning money to account holders with the assistance of Sullivan.

“Sullivan’s approval will most likely elevate problems for some investors who question whether or not they really should have noticed one thing quicker,” mentioned Jared Ellias, a professor at Harvard Law School and former individual bankruptcy lawyer.

“That is a issue that loads of wealthy establishments and other authority figures will soon have to remedy in some way, as this situation progresses.”


When crypto began breaking into the mainstream, Sullivan was divided together generational strains, according to a former staff. The firm, which has 900 attorneys overall and is headquartered in Manhattan’s financial district, even banned its attorneys from proudly owning crypto. It was careful at to start with, but then blue-chip commence-ups arrived calling, such as the likes of Coinbase, DCG, Galaxy and Gemini, as nicely as FTX, which essential tips as they began to interact with money regulators and counterparties.

The relationship in between Sullivan and FTX began in July 2021, when the regulation firm was brought on to recommend on a tiny acquisition. One particular of Sullivan’s companions, Ryne Miller, experienced just left the agency to become a typical counsel at the crypto exchange.

Sullivan would subsequently operate on several assignments, like advising FTX on an try to buy crypto trade Voyager Electronic out of individual bankruptcy. The regulation firm even assisted on a copyright infringement dispute with the hamburger chain Jack in the Box following the quick-meals team alleged that a “Moon Man” showing up in the crypto company’s commercials was a rip-off of its mascot, Jack. FTX was billed $55,000 for the perform.

The firm was picked out, according to 1 FTX former employee, mainly because of its regulatory abilities. It assisted FTX with inquiries from regulators who puzzled regardless of whether American buyers were improperly accessing the crypto exchange’s global platform. And it aided craft FTX’s groundbreaking proposal to US regulators to automate hazard administration in financial marketplaces. When FTX confronted a bank operate in the to start with week of November, Miller immediately went to Sullivan to gin up ideas on how FTX could respond.

Even across a additional than a dozen assignments, the business never appeared to find out that FTX was, as Ray would later on explain it, a “crime scene” and “dumpster fire”.

Sullivan hardly ever labored with FTX on boosting new funds, which could have allowed it to see non-public facts, some of it money, that might have been shared with traders, in accordance to a single individual acquainted with the romantic relationship. As a final result, this particular person mentioned, the law firm would have had no basis to dilemma the sector price or monetary condition of its crypto shopper.

Sullivan declined to comment.

Sullivan is in some strategies the perfect regulation agency to hunt down and investigate billions in cryptocurrency cash and tokens scattered close to the earth. Its best techniques are in banking, money services and fiscal regulation and a lot of of its senior partners are previous regulators.

Ray acknowledged in a court filing that, supplied the deep crisis at FTX in early November, there was no time to job interview any other regulation companies to provide as bankruptcy counsel, preferring to dig in instantly with the Sullivan lawyers who had been currently on the scene.

Ordinarily, bankrupt firms can select their have advisers, as lengthy as they do not have big conflicts of interest. In its 58-webpage software to the courtroom, created in December, Sullivan stated that its partners could cost more than $2,000 for each hour and some pre-current connections to FTX — but almost nothing, it mentioned, that would pose a conflict.

The entanglements of restructuring advisers have turn out to be a sizzling-button issue in recent years, as a small number of elite companies are likely to dominate major situations. Consulting titan McKinsey, for instance, settled in 2019 with the US Department of Justice for $15mn over expenses that it had unsuccessful to fully disclose probable conflicts when inquiring for its costs to be reimbursed in a person case.

Objections to Sullivan’s work on the FTX individual bankruptcy arrived from numerous quarters, which include the US Trustee System, a device of the DoJ, and 4 US senators. Their issues ranged from the actuality that the firm had unsuccessful to plainly disclose its ties to Miller, an FTX standard counsel, who had been a lover at Sullivan in advance of signing up for the cryptocurrency exchange, to the likelihood that the law firm could end up possessing to investigate its very own steps.

Much of the criticism was couched in the terse language of individual bankruptcy regulation, but not an intervention from an FTX account holder, who wrote in a court docket filing: “Sullivan & Cromwell’s personal involvement in the FTX Group’s spending binge need to be investigated and may perhaps outcome in legal responsibility.”

The most superior-profile opponent of the arrangement was Bankman-Fried himself, who took to Twitter and Substack to rail from the new FTX regime though denying ideas Sullivan did not have shut ties to the crypto empire prior to its collapse. Bankman-Fried, now going through legal prices, insisted he was coerced by Sullivan and Miller into submitting for individual bankruptcy, even as he claimed he was on the cusp of boosting contemporary hard cash to help you save the enterprise.

A different member of the FTX interior circle, Daniel Friedberg, also took a swipe at Sullivan in a final-minute court filing, declaring Miller experienced advised him he preferred to funnel small business to Sullivan, the place he “looked forward to returning as a partner” after his stint at the crypto group.


Just after the objection from the US trustee, Sullivan filed a much more comprehensive disclosure of its marriage with FTX, in which it insisted the 20 assignments it experienced undertaken ended up “special, discrete and particular” and that the crypto team experienced by no means been internally labeled as a “regular” shopper.

As for the other allegations, the regulation organization denied them. Much from being embedded in just crypto exchange, Andrew Dietderich, the firm’s major individual bankruptcy law firm, attested in court papers he had only spoken with Bankman-Fried two times. How could the business have coerced Bankman-Fried into boosting the white flag specified the crypto poster boy or girl was surrounded by multiple particular lawyers, which includes his father, when he ceded regulate, Sullivan observed in a court submitting.

Together the way, Sullivan secured aid from the the moment-sceptical trustee in addition to Ray, the new chief govt, and the formal creditor committee, encouraging it keep on to the bankruptcy mandate despite the eleventh-hour criticism from Bankman-Fried and the many others.

It will choose for a longer period to evaluate any long lasting tarnish to Sullivan’s status, let by yourself settle the discussion around no matter whether regulation firms should really use their abilities to recognize companies that are designed on a lie. Final 7 days, Christy Goldsmith Romero, a CFTC commissioner, stated in a speech that “gatekeepers” which includes attorneys “should have significantly questioned the operational natural environment at FTX in the lead-up to its meltdown”.

This kind of a function could possibly be incompatible with the want to forge ties with warm new companies. Ankush Khardori, a previous federal prosecutor and private sector lawyer, claimed substantial legislation companies are keen to make bets on up-and-coming businesses that they imagine can establish into important clients as they prosper.

“The complete thing will make these corporations quite susceptible to having on clients who will eventually flip out to be liars or frauds,” he claimed. “Sullivan would seem not to have acquired the lesson or just not care as lengthy as the expenses hold coming in.”

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